More analysis on 787 accounting block, break-even

Update: Javier has answered (or responded to, depending on your viewpoint) many of our reader comments here.

Original Post:

A blog of which we were previously unaware came to our attention late last week that has the best, most comprehensive analysis of the 787 financial picture that we have seen anywhere by anyone.

This post is very long. Called “The Blog By Javier,” it is written by Javier Irastorza. He works for Airbus Military on the A400M program, which will automatically make his analysis suspect in some quarters. But we were darned impressed by this analysis.


94 Comments on “More analysis on 787 accounting block, break-even

  1. This is a pretty impressive analysis, well done and thanks for the link 😉

  2. Is there a mixup in links?
    “This post” links to bloomberg “Boeing Defers Boost in 787 Parts to Cut Inventory, Supplier Says” By Susanna Ray – Oct 28, 2011 6:26 PM GMT+0200 and is rather short.

    “The Blog By Javier” seem to be the right (long, detailed) one.

  3. Just slighty impressed & uplifted to see a colourful & objective analysis of the 787 program & its associated finances, whilst some may consider it as being a tad biased, it does perhaps offer a clarity on the 787 costings that Boeing has failed to transmit.

    Whilst this is a personal detailed evaluation (Blog) it is representative of the style of presentation data often pushed across sales team tables, but never made public. Importantly we consider it to be representative of the caliber of those we strive to employ within EADS

  4. The analysis makes a few assumptions that are debatable. For example, the current inventory of 18bn is distributed over 58 aircraft that are assumed to be WIP. But the amount should be limited to deferred production cost and unamortized tooling, which according to the 10-Q is ‘just’ ~11bn.
    It is not clear whether the ~50 (almost) completed airframes (minus 3 written down on R&D for 3bn) are really Boeing inventory, as per the original contracts suppliers were to be reimbursed for their shipsets at the time of delivery to the airline customer. So a sizeable share of the content of the 50 airframes may still be in the supplier’s inventories unless they got advance payments (some have).
    Also, it is clear from the earnings call that Boeing is not targeting a 75% learning curve, but expects the learning curve to stabilize at 85% (or whatever the 777 curve was) after the first 45 airplanes.
    The Boeing quote “The positive cash flow will gradually pay back the earlier production costs to finally break even on manufacturing the planes roughly 10 years from now” is highly misleading, of course. This doesn’t refer to the business case break-even, but just to the point were deferred production cost has been burnt down, probably on a pure unit cost basis not accounting for R&D and overhead.
    That is not to say that the picture would get any better than what Javier outlined.

    • Unless contract terms specifically say so it becomes customers inventory when shipped out from the supplier. Anyone know, not guesses, where it stands here?

  5. Mr.Javier Irastorza may well be right about airplanes with expensive developement costs that have to be spread over more airplanes than the current order book contains. After all he works in a progam that only has about 174 airplanes on order, yet has cost, to date over 25 BILLION Euros. Now, like Boeing has done for the B-787 program by ‘writing off’ some developement costs, EADS has done the same for the A-400M program.

      • A hobbyist effort 😉

        Look at the Chinese Great Wall or Roman waterworks for projects processed in a concerted and efficient and functional way.

        Q: What actually did Mr. TB try to tell us here ?

  6. It’s a great analysis, confirming everything we already knew, as well as what Boeing told us this week at the earnings call.

    1. The delay was brutally costly to Boeing and erased any potential for the 787 business to be a blockbuster.

    2. 787 pricing discounts, including early frames were in-line with industry norms

    3. Cashflow will go positive around 2015

    3. Break-even for the program will happen in the middle of the next decade, provided Boeing can reduce unit cost according to plan,. If they can’t, break-even could be as much as a decade further out… or never.

    4. To achieve projected unit cost reductions, Boeing has to move down the production learning curve more aggressively than actuals for the 777, but not out of line with non-Boeing assumptions used for planning in aerospace.

    Finally, and perhaps most entertaining:

    5. Had Boeing invested their treasure of the past 10 years into something which would have provided a return between 5% and 12% annually, they would had made more money in the log run than they can ever hope to make on the 787. I found this most entertaining, given the kinds of returns most of us have seen over the past decade. It’s sure not the first time an NPV analysis took all the fun out of a business case!

    In the end, it’s purely academic, but affirming to see it laid out better than I’ve seen from any industry analyst; I tip my hat to Mr. Irastorza for an excellent piece of research.

    • A little nit or two:
      1) The delays are a couple of miles down the causal path.
      The problem seeding happened in the inception and initial planning phase.
      “Visiting the FAA with a scribbled on table cloth” 😉

      2) The rebates are in the customary range but the initial listprices were rather
      unrealistic. Unachieveable actually. Today the 787 sits on or slightly above
      A330 list prices ($190m++) while initially the -8 sat at $120m ( well below the A330 and well
      below what the industry had expected. )
      WP has an interesting factoid in the march 2004 revision: ANA is said to have bought at 50% below list http://en.wikipedia.org/w/index.php?title=Boeing_787_Dreamliner&oldid=11363331#Commercial_launch last paragraph of that item

      5) That is the major problem any productive manufacturer faces today: The high speed churn capital markets seem to produce much higher profits than any productive manufacturer could.
      ( This is a mirage. capital business is nonproductive )

      Mr. Irastorza: academic style work, proper citing of sources, assumptions written down.

  7. KDX125 :
    The analysis makes a few assumptions that are debatable.

    I agree with you KDX. Too many wild assumptions to be reliable. But credible enough to make realistic projections.

    For reasons that escape me completely, most analysis I have come across have not taken into account the penalties to the customers and various suppliers. As many of those compensations will come in the form of discounts on other programs like the 737 and 777 they should be factored in since they will affect Boeing’s overall balance sheet, one way or another. Whatever the amounts, they should all be charged to the 787 program.

  8. I would hardly describe any figures as wild assumptions.
    Anyone who has sought substantial funds from a credible lender would have faced the issues raised.
    What, INMHO is glaringly obvious is that the 787 requires a higher price tag.
    END OF STORY!

    • Boeing is in an unpleasant postion.
      Pricing for the backlog has been done. Nothing to fix there.

      Thus cancellations principally have the potential to bring relief for Boeing.

      But who should buy for more than double (thrice?) the price what others
      currently dump though they have a potential bargain at hand?

      The Dreamliner seems to have sold on price alone.
      Now with similar pricing the A330 seems to be preferable.

      • If you look at the current market, you’ll see A330 pricing is not similar nor is the aircraft preferred over the 787-8. One only need to look at current lease rates for the two aircraft to see how the industry is valuing the 787. It is virtually impossible to get a 787-8 for less than $1m per month and the A330-200 leases between $0.65m and $0.75m per month. In a recent deal I evaluated, the 787-8 was offered for just under $1.28m / mo. New A330-200s from the same lessor in the same timeframe as a part of the same deal were offered at $0.75m / mo.

        The market creates this discrepancy because the value proposition of each aircraft is very different. A similar gap in lease rates exists for the same reason between the A330 and 767. The market will only bear a price in line with the value a product offers.

        With the exception of a few well-known crybabies in this industry no deal is scuttled today because of pricing offered to someone else years earlier. Speculative buys happen all the time, and the second in line always pays more than the first – it is why the first in line purchased the airplane in the first place. The Iceland Air 787s now going to Norwegian are a perfect example – Norwegian is happy to get the early slots and Iceland Air is happy to make a tidy profit on their speculative investment.

    • That’s indeed the name of the game. The 787 has the ambition to bring a lot of added value to customers. Ironically, it seems the aggressive initial pricing didn’t reflect this added value at all. Now that the 787 is in service, the Boeing sales team has to prove the added value is real and does justify a higher pricing. If they don’t, the A330 will deliver more profit (how far on the learning curve are the Airbus boys ?) and allow large discounts (the currency rate exchange being their main concern). The PR offensive has only started…

  9. CM :
    It’s a great analysis, confirming everything we already knew, as well as what Boeing told us this week at the earnings call.

    Well, it is a model, like there is another model behind Boeing’s accounting quantity and yet another model behind the business case calculation. All these models being different, it is not that easy to take assumptions from one model context to another. Some of the assumptions Javier uses are flawed and cannot fully model the accountabilities beteeen the risk sharing partners (even Boeing can only ‘model’ that until all the ongoing contractual negotiations are settled)

    The real benefit of Javier’s model lies in the fact that it provides insight on the influence of the various assumptions on the overall result. His analysis seems to support the intuitive assessment that based on realistic assumptions for the cost learning curve, the ramp-up, and pricing one can conclude that
    i) the claim the 787 is starting to be cash positive on a unit cost basis around 2014/15 is optimistic.
    ii) it will be a real challenge not to run into a forward reach on the accounting quantity (another generous write-off on flight test planes may come to the rescue)
    iii) that the 787 program break-even – accounting for R&D, overhead and liquidated damages – is unlikely to be achieved much earllier than 2030.

    In that, Javier provided much more insight and transparency than Boeing and the financial analyst luminaries combined, in a comprehensible way. Chapeau!

  10. Very interesting analysis indeed, but reading it it raised one question: For the learning curves to work in this model one must now the relationship between labour cost and material cost, since the learing curve only applies to labour time. I doubt a pound of aluminium or carbon fibre will go down by 25% when doubling the amount of airframes. I don’t know if this is factored in into the model but if not, it would make the forecast even more pessimistic.

  11. javier’s tortured analysis, from within the disaster that is A400, proves only two things:
    [1] beancounters can destroy a manufacturing operation with ephemeral estimates;
    [2] there is no accounting assumption ordinarily applied for ‘business goodwill’.
    look, boeing has been an industry leader in aircraft manufacturing for nearly ninety years. its name is familiar to civilized travelers worldwide. it has an unbroken history of designing and introducing successful models into general production and service. customers for airliners will continue to recognize the boeing brand as the gold standard into the foreseeable future. ANAs purchase and EIS of the 787 was a significant vote of confidence that boeing’s reputation to take care of business is secure in significant regions. and boeing will make the model profitable over some as yet indeterminate time, tortured financial analyses from within competitors’ camps notwithstanding. boeing is a continuing profitable financial enterprise; i’m not worried.

    • Well said, Jim. The bean counters are still in charge of both Boeing and Airbus/EADS.

    • OK, having written that:
      You feeling better now? 😉

      IMHO you can’t fault the beancounters.

      But you certainly can fault management myopically listening only
      to Beancounting and that little department in PR that does the
      press releases for “Boeings very far away future aircraft”.

      That you can do this and still keep shares at reasonable values
      is from my viewpoint the most astonishing sign of
      massively changing times.

  12. Uwe :
    OK, having written that:
    You feeling better now?

    yes, uwe, i do.

    IMHO you can’t fault the beancounters.
    But you certainly can fault management myopically listening only
    to Beancounting and that little department in PR that does the
    press releases for “Boeings very far away future aircraft”.
    That you can do this and still keep shares at reasonable values
    is from my viewpoint the most astonishing sign of
    massively changing times.

    the shrinking number of U.S. airframers are indeed in dangerous financial waters, for a host of reasons, beancounters not least among them. i do not own a single share of boeing stock. at the risk of sounding jingoistic, i have, however, flown tens of thousands of safe military and civ hours in boeing products, for which i am grateful. beancounters have never carried me a single inch.

  13. Jim, “disaster that is A400” indeed. Major problems all around.

    Nothing to fear from that direction. LM en Boeing have sufficient time to determine what to do and an existing dominant position in the segment. The newest C-130s are just fine & a battle proven C-17 that carries much more and continues to gain orders. The world airforces will no doubt remain loyal to LM and Boeing. This has just no priority at all.

    Incorrigible.

  14. Interesting analysis, the one thing it points out though is pretty much already known. The payback period for commercially financed aircraft is far longer than just about any other commercial product, with the possible exception of Nuclear Power Plants. If bad news for Boeing, it certainly can be asked of Airbus supporters, so do you think Airbus will ever make back the $20 billion plus spent on the A380?

    In the end all this really points out is 1) Is it any wonder both Boeing and Airbus went with derivative aircraft for their new NB’s; and 2) with the A350 currently coming in at $15 billion plus in development costs its pretty much in the same boat as the 787 in terms of payback. So expect a lot more debate on government loan guarantee’s for commercial products in the future. One might also reasonably speculate if any brand new large commercial aircraft will be developed in the future without some sort of government backed loans. 20 years or more from the start of a project to breakeven is simply well outside the payback scope that commercial lenders are willing to accept for risk capital. In fact the US currently has 16 license applications for new nuclear plans all of which either are or are expected to be backed by some form of government loans as private capital is just to expensive to use in the case of such a long term project.

  15. A First order evaluation would imho assume a solid initial business plan
    and go by looking at the “overbudget factor”.

    B777: 200% ( grapevine )
    A380: 150% ( initially $10..11b now said to be around $15b ( or more? $20b lacks a solid reference imho )
    B787: 300..400% ( originally $4..6b, now at least $20++b, still open )
    A350: open ( projected cost $15b )
    A400: 150% ( for Airbus, 125% for customers )

    corrections, additions welcome.

    If develcost unexpectedly goes through the roof, understanding of the various risks was insufficient. Small scale experience should have been gained first.
    ( This is actually the modern way of designing. Absolutely no fudging late in the process.
    Boeing seems to never have done it that way and assumed the Dreamliner would just
    work out. )

  16. Is the purchase price of the 787 expected to rise significantly during its twenty year life. If the costs for the A350 are similarly high, wouldn’t that enable the later orders to come in at increased levels.

    The question is really whether the economies and efficiencies of these “advanced” models warrant higher prices and yet still remain profitable for the carriers. Once the discounts have been adjusted or eliminated, will these planes draw purchasers because they provide savings that can carry the higher investment..

    Is this a factor that should be considered ?

    • Javier determined that Boeing listprices have risen at about 2.5%/a. Stepchanges as we have seen for the 787 excluded. Boeing announced the rise as “bringing price and value in sync”.
      Not many sales after the rise though.

      All from WP:
      B787 Unit cost
      787-8: US$193.5 million (2011)[3]
      787-9: US$227.8 million (2011)[3]

      A350xwb Unit cost
      A350-800: US$236.6 million (2011)[3]
      A350-900: US$267.6 million (2011)[3]
      A350-1000: US$299.7 million (2011)[3]

      A330 Unit cost
      A330-200: US$200.8 million (2011)[2]
      A330-300: US$222.5 million (2011)[2]
      A330-200F: US$203.6 million (2011)[2]

  17. CM on pricing:
    leasing rates for a plane not available for use are imho nothing more than fantasy numbers.
    ( how much trade is done on 787 leasing these days? )
    swapping slots ( your example Iceland to norwegian ) seems to be a rarity. The usual action these days is plain cancellation and then going over to the Airbus stall and ordering a complement of A330.
    What did Norwegian actually pay for those slots?

    • If you think ICE’s purchase and subsequent re-sale of their 787s was a fluke, then try explaining others. Pegasus is another speculative 787 buy which comes to mind.

      As for the pricing and preference of the A330, you’re living in denial, Uwe. Availability has a value attached to it as well. This is value the 787 cannot deliver when slots are not available. Even when slots are available, but later, the time-value of money we have been discussing here can sometimes result in a less capable/efficient/economical product delivering more value. In this sense, A330s (including many on order) are currently providing the best available bridge to get an operator to the 787.

      You are always one to accuse others of buying into Boeing marketing. I’m afraid this is one instance where you are eating straight from the Airbus feedbag. The truth is when all other factors are equal (availability, fleet transition, etc.), the 787 delivers significantly more value than the A330 and commands a much higher price. The leasing market is relevant here, because only the leasing market can erase the current availability gap that exists when considering a direct buy from the OEMs.

    • And regarding “lease rates for a plane not available”, I’m not sure what your point is. The lessor was offering both new A330-200s and new 787-8s in the same timeframe. The lessor has positions in the same year secured from both OEMs. It was about as apples-to-apples as it gets… except when measured in terms of lease rate, with the 787 offered for considerably more. Incidentally, the operator selected the 787.

      • Marketing: I haven’t seen much strategic communications from Airbus recently ( but a lot from Boeing ). so I can’t “drink” from whats not offered.

        Leasing: when would that decission have happened?

        787 availability currently is solely dependent on Boeing. Only when enough frames have been delivered to touch the leaser’s orders will leasing rates start to reflect market value
        of the Dreamliner. Earlier, all activity is speculative.

        Net orders are still in decline.

  18. From the day the 787 rolled out on 07/-8/07, when CEO Mc. Nerney
    flat-out stated the falsehood that “the a/p will fly in Sep. and go into
    service next Spring,” followed by three years of many more unfounded
    official Boeing statements about “the forthcoming real” in-service date,
    I attach much more value to the impressive and detailed Javier analysis
    about the number of 787s or years it will take to break even, than the
    1,200 units Boeing is now forecasting!
    Whatever the number/years is, two points have been overlooked, or
    ignored;
    1) Say one $1;-Bill. is written off every year over 30 years, which means
    that one Billion will NOT be available for other developments Boeing
    needs to make, to the 737, the 777 and the 787-10, to fend off the
    challenges from various versions of the A350 and especially the-10,
    as well as the A380, all within the next 5-10 years!
    To write off the $32,-Bill. in say 15 years, only doubles the amount
    of money Boeing needs to borrow, in order to accomplish the re-
    quired new developments within the next 5-10 years!
    2) Penalties for late 787 deliveries have not been included, but must be
    included in the total cost-overrun, even-though they are seldom if
    ever made public, for obvious reasons.
    Note:
    C135TopBoom Quote Now, like Boeing has done for the B-787 program
    by ‘writing off’ some development costs, EADS has done the same for
    the A-400M program.Unquote
    We are talking commercial programs only and fortunately neither the
    A-400 nor the “Frankenmoster” are n this calculation!
    Also Jeff re. the A380, the 747, SP and 747-300 did not produce any
    profits for Boeing until the ’80s until the 747-400 came, while the
    747-8 sadly came too late to ever make a profit on its $3,-Billion invest-
    ment, even if the F sells well, which is unlikely with the availability of
    many “young”-400s for conversion to freighters.
    The A380 is now in the same “monopoly” situation as the 747 was and
    the longer it takes for an A380 replacement aircraft to be offered, which
    may also take decades, as with the 747, the more chance there is for
    Airbus to eventually earn their A380 investment back and more!

    • CBL, there is no need to worry about the sales level at this stage.

      The main reason why so few 787 were sold recently is because the program is oversold. The waiting time is too long, with more than 800 on backorder already. The problem is compounded by the fact that they have major difficulties at the manufacturing level, which slows down production even more.

      Eventually, possibly a few more years, we can expect Boeing to overcome those difficulties and start producing at a more normal level. Although I don’t expect them to ever reach the level they were forecasting early in the program.

      Also, the first samples are overweight. It’s one more issue that holds back the potential new customers. Many airlines will want to postpone their decisions until Boeing finds a solution. Same thing for the engines. They burn more fuel than expected and the manufacturers will again have to find solutions before the airlines commit to buy the aircraft and select an engine.

      As new 787 variants come on line they might generate new interest though. But we can expect the sales level to remain low for a while. There are still too many unknowns and uncertainties. I just hope things won’t get worst before they get better.

      Unfortunately some airlines wont be able to wait very long and we can expect a few to switch allegiance and buy the Airbus A330 instead. I am less concerned by the A350 because the latter is also oversold.

      It’s a sad situation for Boeing. The very large number of aircraft sold at a lost will actually prevent them to sell many more at a profitable level. I guess we can say that Boeing is a victim of it’s own success.

  19. While that is true, Rudy, the fact remains the A-380 program is currently a financial loss for Airbus, just as the B-787 is a loss for Boeing. Both programs will take several years to turn a profit. That is if the A-380 ever makes a profit. Production, or the A-380, is still no where near what Airbus wanted it to be, some 4 years after the first delivered airplane to SQ. Also the sale of each B-747-8I extends the break even point for the A-380 program by one airplane. The B-747-8I-VIP/BBJ airplanes have out sold the A-380-VIP by something like 9:1 or 10:1. The selection of the VC-25A replacement airplane, if it is the B-747-8I will not effect the A-380 program, but the lack of a viable A-380F does hurt because Boeing has the B-747-8F.

    The B-747-8F and converted B-747-400BCF programs show the future for the VLA market is really in cargo jets. At some time in the future the B-744BCF program will dry up, that leaves only the B-747-8F in the VLA cargo market, with no answer from Airbus. Converting former A-388 pax jets to a freight will not produce much more than a three deck B-767-300ERF or A-330-200F. An “A-388CF” will still have a MZFW of some 810,000 lbs (366,000 kg), and a MTOW of some 1,260,000 lbs (about 570,000 kg). But it will still be a package freighter, not suited to oversized cargo (neither is the B-744BCF), like original built B-744-200F/-400F/-400ERF/-8F are.

    Airbus has, to date, produced just two new build freighter designs, the A-300-600F and the A-330-200F. In contrast, Boeing has built a freighter version of every 700 series jet aircraft, accept the B-787 (if you count the B-720 as a version of the B-707).

    I am not saying the freighter market will take over the commerical market. Far from it. But I do see the VLA market shifting to become almost exclusive freighters. That means the airline market will settle for the B-77W and A-351 sized airplanes, and smaller. But, as the A-351 is currently envisioned, it is not very popular, only about 75, or so have been sold in nearly 5 years, and it has been critisized by at least one of its customers.

    • TB, you keep posting in the wrong thread. We’re not discussing the A380 or freighters here.

  20. CM :
    If you look at the current market, you’ll see A330 pricing is not similar nor is the aircraft preferred over the 787-8. One only need to look at current lease rates for the two aircraft to see how the industry is valuing the 787.

    The market creates this discrepancy because the value proposition of each aircraft is very different.

    CM, if the 787 is overweight and the engines burn more fuel than they are supposed to, how can the aircraft retain its value proposition? It seems the figures you are providing reflect more the expectations the customers were having early in the program, when the sales reached quickly to more than 800 and before the flight tests revealed these problems.

    • Because an airplane who’s spec (I’ll use A350 claims vs. the 777 numbers) was to deliver a 25% fuel burn savings, ends up missing spec by +6%. That airplane still delivers a 19% fuel burn advantage over the competing aircraft. The 787 is only “bad” when compared against Boeing’s early performance claims for the 787 itself. 787 economics still dominate the the in-service aircraft it was designed to replace.

      …queue Uwe, Keesje and the balance of the Airbus cheer squad to come parrot JL and tell us the 787 economics only surpass the A330 on routes longer than 7000nm – a market segment where a 787-8 sized airplane can’t make money 😉

    • I should have mentioned, the lease rates I quoted for the 787-8 and A330-200 were offered this year for slots prior to the 787-9 coming into service. So it is VERY current pricing for VERY near-term aircraft.

  21. CM :
    Because an airplane who’s spec (I’ll use A350 claims vs. the 777 numbers) was to deliver a 25% fuel burn savings, ends up missing spec by +6%.

    Slightly revisionistic statement, as the spec promised 20%. A 6% shortfall (where did you get that figure?) would still leave a 14% improvement in fuel burn.

    But then remember the 787 was touted as a gamechanger that enables flying new long range point-to-point routes. For some customers there’s no point in having the airplane if it can’t make the required range.

    Seems that spec performance may not be met before Trent 1K Package C and GEnx-1B PIP2 become available – about five years after the originally planned EIS.

    • CM carefully took the A350 versus 777 promise as an example ( for whatever reason).

      Years ago the 787 was staged against the 767: “20% better overall than”.
      In view of being overweight and short on sfc this will have contracted to not
      much more than 15% for the near term delivered frames.

      The PAX 767 has left the market as a viable proposition for obvious reasons
      years ago. Certainly, airlines order the A330 as a gap filler but they seem to be
      certain that this metal will not drag them under when others get their late 787.
      It is a balancing act after all. Nothing either black or white.

      Actuall success for Boeing and customers may start with the (unfortunately
      further delayed) -9 model.

      Builidng no dedicated freighters is a distraction. The arguments for the postponement
      of the A320 P2F project points in the right direction : Not enough frames available
      on the market. Airbus has been growing continuously all the time. You can’t achieve
      everything from a standing start.
      Boeing moving over into freighter country could well be effected by the sales losses to Airbus in the PAX market.

      A question on the side:
      What pricing power do the leasers have towards the different (type) airlines?
      Isn’t leasing one solution when the market will not lend you money under acceptable
      conditions ( lack of trust ) ? This same lack will imu reflect in leasing rates.
      Lack of liquidity is an exponential problem.

    • Not revisionist at all. The numbers I used are the ones Airbus is advertising today in their generic A350 performance numbers.

      For Uwe, the reason I “carefully” used 777 vs A350 to make my point is because the 787-8 & A330-200 numbers I have seen were provided by the OEMs under PIA/NDA, respectively. I just couldn’t think of an honest way to reflect the real numbers in my post and not violate my obligations to the OEMs. The pricing data was mentioned publicly by the airline, so I received a free pass on those numbers.

      Regarding Boeing’s generic number versus the A330-200 or 767-300ER, we need to follow the evolution of that number over a period of years to get a true understanding of how the airplane has been compromised by thirsty engines and a chubby airframe; When Boeing found the 787 engines were missing spec and the OEW of the airplane was eroding into their generic fuel burn reductions, Boeing changed the baseline 787 cabin from 8-ab to 9-ab as a way to “recover” performance to the original claim. It was a clever move which is viewed from two polar perspectives, depending on who you talk to. Some see it as a deceptive sleight of hand (although it was done openly). Others point to the fact the majority of airlines which had stated a pax count for their 787s had already decided to go with 9-ab at the time Boeing made the change in their block fuel/pax denominator. To me, it’s of no consequence; the generic numbers (fuel burn, range, etc) from neither manufacturer are representative of any real-world operation.

      • OK on the 350/777 selection.

        fixing and fibbing:
        The downside is that the Dreamliner cabin @ 18 ft (5.49 m)
        is not 1 seat wider than the 330 17.3 ft ( 5.28 m).
        Another variable used in comparisons moved onesidely
        from “middle” to “upper limit”. ( at least in the public image ).

        Reminds me of the quips that the 737 “already has winglest”
        as indication of being better.
        For sure the winglets are there but the winglet advantage thus has already been played in the game.

        You say professional information shows less “creative” handling of facts?

        Living in electronics the advance informations I get about new
        parts have lost facts but gained ever more T&A style presentation 🙁 These days for info on the nitty gritty internal workings you have to really lean on the manufacturers.

      • Just fo the fun of it:
        A330 @9 versus 787 @9 abreast is +1″ per seat difference
        767 cabin width: 15 ft 6 in (4.72 m)

  22. Normand Hamel :

    KDX125 :
    The analysis makes a few assumptions that are debatable.

    For reasons that escape me completely, most analysis I have come across have not taken into account the penalties to the customers and various suppliers.

    They are (partially) included in the Boeing inventory as stated by their 10-Q. A fair share of the penalties might materialize in other programs (737, 777) via price concessions.

    • “A fair Share of the penalties might materialize in other programs (737,777) via price concessions.”

      That’s my point! They should be charged to the 787 program. Since the amounts involved are quite substantial, they have to be incorporated to the overall costs of the 787 program if one is to be able to evaluate the break-even.

      Otherwise they become hidden costs. I suspect there are quite a few of those hidden costs distributed here and there. Despite all the stringent regulations it is still relatively easy to cook the books.

      It wont change anything for the overall balance sheet of the company, but it certainly would have an impact on the valuation of the 787 program if those hidden costs were properly taken into consideration.

      Remember, we are talking billions of dollars here.

  23. Folks love to pull in the A380 to suggest it was an equal disaster (share the pain).

    The A380 will be strong if fuel stays high, traffic keeps growing, mega hubs remain constrained and consolidation (alliances) keeps growing.

    Lets not forget the A380 met first flight targets, apart from a few months, got certified with 1 yr after first flight, had EIS with SQ 19 months late (~2 yrs), continues to draw crowds everywhere it goes (marketing value), set new customer satisfaction standards and met efficiency targets from day 1. Its a modern Icon.

    http://www.youtube.com/watch?v=DBgjXTq0Vkc

    Compared to the 787, the A380 has one other factor influencing prices, margins and program, ROI: No competition. It helps.

    • not sharing the pain but
      “preparing for the pain”
      imho was the reason to kick of the A380 “astroturf” bashing campaign.

    • It’s nice to see that kids can still get exited by aircraft. Yes the A380 is awesome. Like the 747 was in it’s heyday.

  24. keesje, lets not forget many airlines are replacing their older VLAs (B-747s) with smaller more efficent jets like the B-77W. There is a reason why the A-380 has only sold about 250 units, +/-, in about 10 years. Some 90 of those sales are to just one customer, EK (they might order more once they get their new airport). So without this one customer, would the A-380 be a failure?

      • Still a very limited audience:
        google: Javier Irastorza boeing “break even” 9 hits
        ( and only one Leeham reference )

        in contrast:
        google: ubs bank boeing “break even” ~240,000 hits
        ( the Leeham refs come high )

        I don’t think this will turn the tide against more Boeing sided
        ( and/or just void of facts ) communications.

  25. KCTB, far fetched arguments. The A380 has 18 customers & keeps selling, faulting predictions by not so objective sources over the last 5 yrs. EK doesn’t worry Boeing as being the largets 777 customers for a second. Neither do LH(8i) and Lionair(739).

    The A380 has a varied and powerfull global customer base. Asiana, Skymark and Transaero joining the bigger A380 carriers is a sign of the real need for VLA’s in the next 2 decades.

    Some are clinging on to the fact no US carrier has ordered A380s, deep down knowing its also only a matter of time..

    • Yeah, sure keesje. I put the Skymark order in the same drawer as the Kingfisher order for the A-380, the UN “order” for the A-380 was only a LOI that never materalized, I believe they are now looking for unsed B-744s for those missions. OZ will take their order for 6 A-380s as they are to return their leased B-744s and convert 4 B-744Ms to B-744CFs (I believe IAI is doing the conversion, not Boeing).

      The hand full (18, as you say) of carriers and leasors that have ordered the A-380 pails in comparison to the 55 carriers and leasors that have ordered the B-787.

      The fact remains only about 250 A-380s have been firm orders. Only about 60 (+/-) have been delivered todate, the 60th airplane delivered to EK (their 17th I believe, MSN-77) just a few days ago. I will not fault Airbus for not delivering MSN-74 to QF, on time as that airline may ask to delay delivery pending the resolution of the entire QF fleet grounding due to labor problems. So lets call it 61 airplanes delivered in 4 years and 16 days (first delivery on 15 Oct. 2007 to SQ). That is not a good track record for what should be an almost mature production line (it isn’t as only 18-20 A-380s delivered so far in 2011). Airbus has never met its original goal for annual production since the first delivery in 2007.

      I see no US, or North American carrier who can use the A-380. They may not even need the B-787-8I, but surely need both the B-77W (AC and AA have ordered them, and AC has them in service), and the B-787. US’s and UA’s order for the A-359 eliminates their need for the A-380, or the A-343s that US was looking for. UA may use the A-359 as a B-744 replacement, or order B-77Ws for that role. UA also has several B-787s on order.

      • TB 250 A380s is a lot. Many years of production and similar work as many smaller jetliners. Many top up orders and likely new carriers down the pipeline in Asia, Middle East, America and Europe. S.America and Africa too later on.

        Replacing 747s with smaller twins in booming long haul markets like Asia (with limited slots, hard fought overfly rights, and network waves) is a concept I’ve seen before in the blogosphere, but not in Airline network planning 😉

        Switching that daily 747 flight to Asia from a 747 to e.g. a 777 means cutting capasity, payload, ruining the local market share, corporate contracts, distribution etc. forcing airlines to cut everything to prevent unit costs from rising. Knowing competitors will fill the capasity gab for you.

        In general it’s simply a bad idea 😉

  26. Pingback: More on Boeing 787 break even | The Blog by Javier

    • Javier, congratulations for a very interesting article. The appraisal is almost unanimous.

      But we must remain prudent in view of the fact that there is still a high degree of speculation in the 787 story. I say this because there are still too many unknowns, on the production side in particular. On one hand we might be too pessimistic, but on the other we might also be underestimating the difficulties. We don’t really know. Because of that reality, some of your otherwise reasonable assumptions remain speculative. That being said, they remain quite realistic and that is why they are so much appreciated. And we thank you heart fully for the effort.

      Question: Why didn’t you take into consideration in your analysis the penalties to various customers and suppliers?

      We hope to hear more from you on this subject or any others.

      Cheers!

      Normand

      • “I say this because there are still too many unknowns, on the production side in particular. On one hand we might be too pessimistic, but on the other we might also be underestimating the difficulties. We don’t really know.”

        Normand, I guess you have not heard about Mr. McKenerny’s lastest re-assurance that 787 production would be clear sailing once they finish whatever they are doing with the 40-50 they are re-working. Or perhaps you chose to ignore Jimbo. I wonder why.

      • Thanks for your words, Normand.

        “But we must remain prudent in view of the fact that there is still a high degree of speculation in the 787 story. I say this because there are still too many unknowns, on the production side in particular. On one hand we might be too pessimistic, but on the other we might also be underestimating the difficulties. We don’t really know. Because of that reality, some of your otherwise reasonable assumptions remain speculative.”
        > I agree with the statement. That’s why I included some sensitivity analysis for most of the assumptions, and that shows that depending on whether you take one set or the other break-even date may vary a whole decade back and forth… in the end models are what they are, nothing more.

        “Question: Why didn’t you take into consideration in your analysis the penalties to various customers and suppliers?”
        > As I answered in my blog: I haven’t found how to treat them in public sources, thus I preferred to leave them out. I was later pointed out by KDX125 that some of them are included in the inventory. Those already included in the inventory would be in fact taken into account in the model.

        Regards,
        Javier

  27. Christopher Dye aka CubJ3 :
    Normand, I guess you have not heard about Mr. McNerney’s lastest re-assurance that 787 production would be clear sailing once they finish whatever they are doing with the 40-50 they are re-working. Or perhaps you chose to ignore Jimbo. I wonder why.

    Are you thinking about the Information presented by DGates in his latest article?

    Difficult.
    One would have to run what McNerney ( and Ball too ) says through
    a Boeing speak to QueensEnglish “interpreter” first 😉

    What weight do these assurances have? i.e. what is the fullfillment rate up to now?
    Would including them improve the estimation or just distort it further?

    • From that article:
      But Boeing’s business model for the 787 relies heavily on outsourcing, so the costs are baked into the big sections that arrive from suppliers around the globe. To reduce costs, Boeing will have to renegotiate pricing contracts.

      Because suppliers were so heavily hit by the program’s delays, Boeing had to raise the prices it paid them for the early units that cost so much to build.

      “At some point in the future, that contractual price is something Boeing hopes to negotiate lower,” Copeland said.

      With so much in the hands of suppliers, he said, the pace of overall cost reduction is harder to predict from outside.
      /end cite

      so a lot will depend on Boeing being able to “choke” their partners while in the same step
      get good results from the same. That will be extremely difficult. ( and traces a question I
      put up here before )

      And thinking about it Boeing has just assembled frames in about the same way it is projected for the future. All that extra rework has not been done yet ( just for the prototypes and the two++ early deliveries).

      • Airbus does it all the time. Why do you think Boeing is incapable of getting a price cut from their suppliers?

    • There is another goodie in there:
      This calculation does not take into account the 787 research-and-development costs nor the costs of acquiring the 787 plants in South Carolina from struggling partners.

      Those costs, estimated by The Seattle Times at around $16 billion, will have to paid back for Boeing to see a return on its total investment.

      That will likely take at least an additional 700 deliveries beyond the initial 1,100 jets.

      Even then, Boeing still won’t be in the clear.

      Long before 2021, it will have spent billions more to develop at least two further variants of the jet, the 787-9 and 787-10.
      /end cite

      Seem to indicate that the accounting quantitiy (1100) just evens out _production cost_ for a slightly positive return.

      ups.

  28. KC135TopBoom, Keesje and others,
    The one critical factor with regard to financial position of the 787 program
    NOT mentioned, is the fact that the A350, like the 777 and most other air-
    craft which came in “second” were better, like the DC-8 v.v. the 707-100,
    the 727 v.v the Trident, the 737 v.v. the DC-9/BAC111/Caravelle, etc..
    This because they were launched with the specific necessity in mind to pro-
    duce a better a/p than earlier aircraft in that category already on the market,
    i.e. the 777 v.v. the MD-11/A340, the A350 v.v. the 787, or to keep their
    money in their pockets!
    Therefore, the 787, already being at a disadvantage v.v. the A350 on paper
    and now requiring years to “mature” and the A350 already being “better” by
    design, will be in service and available in large numbers, by the time the 787
    comes up to its original, less-dvantageous, specification.

    Furthermore, while Boeing MUST find and spend a lot of money to improve
    the 777/787s, live with the 787 losses and the slow sales of the 747-8 to
    fend off the A350/A380s, Airbus has much lower cash requirements for the
    A320NEO and finishing the A350 only, compared to what Boeing is going to
    require in the next 5-10 years!

    A sad and NOT a very pretty picture for Boeing, which can only be attributed
    to inexperience, arrogance and the resulting lack of insight and awareness
    at the highest level of Boeing management, of the ever in creasing threat
    from Airbus over many years, until it was too late!

    • Take a walk in the shoes of an early investor. Obtained Boeing shares in the low thirties and sold off with a huge profit when stock price hit triple digits. With short/medium term investors the ‘break-even’ is already behind them! For these guys a long-term program like the 787 is just a means to an end, in this case the creation of a stock market hype around the best selling commercial airplane ever, enchanting Wall Street analysts. What counted for them was 1,000+ orders before EIS. They can’t be bothered that this turned into 1,000+ liabilities for gurantees and /or delivery dates that are not going to be met. They can’t be bothered by cancellations that just passed the 200 mark or by profanities like a production ramp-up. They went away with their pockets stuffed.

    • The DC-8 came later than the 707 by about a year 1957 for the 707 vs 1958 for the DC-8. In that case the earlier launch helped the 707 outsell the DC-8 nearly 2 to 1. Also, you might compare the relative success of the inferior DC-10 to the Lockheed Tri-Star, again the DC-10 launched earlier and easily outsold the Tristar. The early vs. late launch is somewhat spurious as it seems to help in cases where significant new technology becomes available or better sizing your product to meet market demands can be done, but it definitely seems to hurt when the products are relatively equal. In terms of technology it is hard to say that either plane has an advantage over the other, since both planes incorporate the same basic technology, you can argue about the merits of the 787’s barrel fuselage vs the A350s panel approach and the 787’s electric architecture vs. the A350’s or the A350’s slightly newer engine design (not that it matters though since any engine advances on the A350 will find their way to the Trent 1000s on the 787).

      The real determinant in this contest looks to be execution (very poor on Boeing’s end so far) and which manufacture correctly guessed market size and performance requirements. If Airbus performs as poorly or even slightly better than Boeing in terms of it’s dismal 787 launch performance, Airbus will be at a disadvantage due to launching a relatively technological equal plan later, if they launch the A350 within 6 months of their planned date the late launch won’t be too much of a penalty. More worrying for Airbus might be the size issue. Both the 787-8 and 787-9 appear to be exactly the size and performance the market wants, and the 787-10 is aimed squarely at the most popular A350 model the A350-9 in terms of size but not range. While for Airbus it can only be said that one model the A350-9 is right sized and appears to have much demand in the market (easy to say since it accounts for 63% of all orders with many airlines moving to convert A350-8s to A350-9s). Anyway, as far as trouble for Boeing goes I don’t think early or late launch factors in at all, and if the 787 hits its ramp-up it will be Airbus under pressure to perform and also to show that despite a meager 75 A350-1000s sold so far and sub-par performance of 135 A350-8s sold that they indeed did get the markets desires correct in the size/ performance equation.

      • We will be posting tomorrow (Tuesday) the story of Selling of the 707. It reveals how Boeing got the lead on Douglas–on the back of the USAF.

      • I don’t think you can devise a theory based on being first or second in the market. There are too many variables to consider.

        I will just take one example. Lockheed had an excellent design. Arguably one of the best airliners in commercial aviation history. They sold only 250. Why? For various reasons. Beside the engine problems it was mainly because Lockheed was facing what was at the time a formidable adversary: Douglas Aircraft.

        Lockheed was struggling with Douglas like Bombardier is today with Boeing and Airbus. Well established competitors with a strong reputation. That’s why John Leahy said they were brave to launch the CSeries. I would say that Lockheed was crazy to launch the TriStar.

        The L-1011 did not find a place in the commercial aircraft market but it sure found one in History.

  29. McNerney, Pat Shanahan, Mike Bair, Bell, Albaugh, Carson, I’ve seen them all standing firm, declaring everything is under control, they are happy with where they are and have a solid process in place to accomplish the milestone within 9 months.

    All good guys with good track records, tech backgrounds, lots of experience. I wonder what were the real forces behind them keeping promising things every engineer could see were highly unlikely.

    Much off the press, analysts seemed seduced by the shows, promises, glorious innovation and staggering sales figures of this Iphone of aviation. People airing real doubts were ridiculed, jealous, french or worse.

    Remember “rushed” and “ridiculous” headers in 2004 already. In hindsight those engineers were totally accurate.(note how even the header is taken out of context, to light the fire)

    http://www.theengineer.co.uk/in-depth/rushed-and-ridiculous/267564.article

    • Phil Irving, civil aviation authority expert in damage tolerance at Cranfield University, said engineers should dripfeed composites into aircraft design to avoid ‘unexpected failures. ‘There is always a risk when introducing something new on to an aircraft, no matter how many tests. There’s always something we haven’t realised.’

      Read more: http://www.theengineer.co.uk/in-depth/rushed-and-ridiculous/267564.article#ixzz1cPM9r6hu

      It seems that Airbus ignored this part when they used composits in parts of the vertical of the A-300, and subsequent airplanes. Remember AA-587? Yes, I know the NTSB blamed the accident on the co-pilot for being to aggressive with the rudder pedals.

      • The example you are giving is also the one that other Boeing fanatics are frequently citing. You know why? Because there are no other examples to give!

        Besides, the A300 is a design of the late sixties. I am sure Airbus has evolved the way it attaches the composite tail to the fuselage in the last 40 years.

        But wait a minute, did I say late sixties? Composite tail in the late sixties? Wow, I did not realize Airbus was that far ahead of Boeing so early in the game.

        Reference: en.wikipedia.org/wiki/American_Airlines_Flight_587

        • The design was perfect ( separation was well beyond certification limits, same with AF447 )
          The TV documentary I have is in parts a gross missrepresentaion unlinked from the NTSB report ( most of those “breathless” documentaries are worthless anyway ).

          Afaik the interface still is the same basic design : lugs and bolts, “cosmetic” covering.
          Very clearly defined interfaces between major structure items is Airbus historic strongpoint.
          If you manufacture in different places by different people you have to have that down pat.
          ( the wiring brouhaha has probably been quite the enforcement there )

          the internal structure probably has been improved over time.
          Airbus has continuously pressed forward improving on materials and design/manufacturing
          processes. And there seem to be no examples that innovations that left the sandbox had to be retracted.
          My tentative guess is that Airbus spends more time and money in preparation
          and setting up detail assembly and FAL processes while Boeing used to rely more on shopfloor derived changes and improvements.
          They lost their footing with the 787 because the Airbus process they targeted to replicate was for Boeing management indistinguishable from magic.

          Lets assume as an extreme that carbon skinning has a yet unknown hidden fault that renders it unsuitable for all or parts of the application. Who has a better chance to change materials
          given the different preferred manufacturing paradigms?

    • Boeing was betting the farm.

      The timeframe was the final endorphine soaked surf ride
      towards a global financial crash.
      ( and don’t tell me relevant people didn’t have a whiff of an idea
      that the ride was a ski jump into the abyss )

      The crash would allow to extend the too short timeframe to EIS ( actually worked )

      Airbus would loose more orders than Boeing in a contracting market.
      .
      What did not work was the assumption that the Airbus process was an easy copy.

      The whole process is filled with cultural differences forming perceptions and actions.

  30. Christopher Dye aka CubJ3 :
    Or perhaps you chose to ignore Jimbo. I wonder why.

    I din’t chose to ignore Jimbo, or you for that matter.

    McNerney is stuck between a rock (IAM) and a hard place (Wall Street). He is in an extremely difficult position, facing an extremely difficult situation. I will take into consideration anything he has to say because there might be some truth to be found there. But sometime we have to do the extrapolations ourselves, for there are things that are best kept secret. Within the bounds of legality of course.

    As you know Christopher we have occasionally been given by Boeing some estimates and predictions which we were not able to corroborate later on with known facts. The reason for this is that we have been subjected to the BS treatment. The Boeing Spin (BS) is a dangerous approach because it can eventually turn against its practitioners.

    I despise spin, hype or BS. I am a truth seeker, with an open mind. I want to know what is going on at, Boeing and what is happening to, Boeing. Its a company I have admired since my childhood and I would like to see it prosper in the future. But things have changed dramatically at Boeing since the glorious postwar years.

    The B17, B29, B47 and B52 have given us the 707, 727, 737 and 747. In those days Boeing was in a class by itself. But it’s been downhill ever since. At least everything has not been lost, for Airbus is carrying the torch now.

  31. Normand Hamel :
    But wait a minute, did I say late sixties? Composite tail in the late sixties? Wow, I did not realize Airbus was that far ahead of Boeing so early in the game.

    Yes it had escaped me. But not Rudy Hillinga, if I understand what Rudy has been trying to convey to the incorruptible Boeing fanatics. We should listen to him because he was there when it all started. He saw it from the inside and he had good seats.

  32. leehamnet :
    We will be posting tomorrow (Tuesday) the story of Selling of the 707. It reveals how Boeing got the lead on Douglas–on the back of the USAF.

    There is a whole chapter about that and other examples related to aerospace market and industry in the book “Technology and Market Structure: Theory and History” by John Sutton.
    http://www.amazon.com/Technology-Market-Structure-Theory-History/dp/026219399X
    (Curiously enough I was referred to this book by the same colleague from whom I got the idea of working out a model for the 787 break even)

  33. Howard :
    Airbus does it all the time. Why do you think Boeing is incapable of getting a price cut from their suppliers?

    A matter of sanity imho.

    My thinking is that Boeing already must have arrived at exceptionally low offers from their partners initially. Cheap, Cheap, Cheap.

    Unfortunately that process must have been similar to a bunch of sightless choosing wallpaper designs.

    Boeings plan was to have the partners work cheaply and get rich in the process
    from leasurely doing a game of legos 😉

    After all changes and a detail here and there how many suppliers can actually produce for the initial offer?
    How much added cost has to be recouped from being dumped into hot water repeatedly over 5++ years by Boeing?

    Suppliers afaiks will go for raises and fight tooth and nail to achieve that.
    I am waiting for the moment Airbus has to intervene at common suppliers because they have been beggared by Boeing.

  34. Howard :
    Airbus does it all the time. Why do you think Boeing is incapable of getting a price cut from their suppliers?

    Well, they got that price cut initially. But in the meantime, suppliers used the leverage they gained from the huge backlog that grew well beyond initial block sizes between 150 (Alenia, Japanese Heavies)) and 500 (Spirit) airplanes. It is said that Boeing aimed for and got a 40% price cut initially. Since then at least Alenia and Spirit managed to increase shipset prices by 60-80%, according to their 10-Ks. Plus they obtained further concessions like being paid for 787-9 R&D ‘as they go’ instead of sharing risk. None of the cost savings aimed for by the “extended enterprise” worked out, except for tax breaks and state aids by the partner’s countries.

  35. Uwe :
    The design was perfect ( separation was well beyond certification limits, same with AF447 )

    Airbus has encountered at it’s beginning the same difficulties that Boeing is facing today with the 787.

    Having fallen behind Airbus in technological leadership, Boeing needed to make a statement. That was the driving force behind the Dreamliner. When you push the technology limits further than anyone else before you are taking risks and you are more vulnerable.

    Boeing built it’s well deserved reputation on the physical strength of it’s various designs. Starting with the 707, they always had well designed aircraft. Simple, efficient and safe (strong). Today we would say that Boeing aircraft were elegantly over-designed. It was a corporate philosophy. It was a tradition. It was a way of life at Boeing.

    But we don’t build aircraft like this anymore, including at Boeing. Today’s aircraft are better designed, but they are more flimsy. There is less margin. Everything is designed with the maximum strength it needs. But not more. Nothing can be wasted on over-design. That was the Airbus philosophy, and Boeing followed suit. They had no choice. Each gram has to be accounted for and justified.

    The A300 was designed with a built-in margin of 1.5 and it failed at 1.7 on AA-587. Take any old Boeing aircraft, from the 707 to the 747. I bet you, nothing will fail completely at 1.7 or more. And the older the design, the stronger it is. But that was in the days of metallic airplanes and low jet fuel prices.

    Engineers understand the behaviour of metal better than composite and it is also more predictable. That is where the risks are. Airbus needed to establish itself as a modern aircraft manufacturer to be able to compete with Boeing, Douglas and Lockheed. But they paid a high price for the entry ticket.

    Today Boeing and Airbus aircraft are comparable in terms of strength. They have to, for both are designed on computers., using the same software: CATIA.

    • “The older the design, the stronger it is”

      That was not ‘best practice’ at the times of the 707. It is more advisable to have the initial design fail slightly below the target threshold and then just beef up the airframe were required instead of making all parts stronger than needed. Already practiced at Douglas in the 1950s when famous designer Ed Heinemann’s team created the lightweight A4D Skyhawk.

      • The Skyhawk is one of my all-time favourite jet fighter. It may have been lightweight, but it had a reputation of being indestructible.

    • Thought a bit about it.
      My tentative guess is that “Boeing indestructible” probably is more derived from wartime use
      and the popular myths that grow in those times. ( And winning is always based on the more valiant fighter and on better quality than on just bigger numbers ).

      A300 sans tail: The ntsb report mentions “twice limit load” for the first lug to go.
      Thats just 1.33 of ultimate load. One relevant question is : were do you want failure to
      happen? in the surrounding structure or in the interface ? What is preferable may well be dependent on failure modes of the material. While metal tends to deform composites fail much more spectacular.

      Less margin: That is a continuing process. The time to failure variance is decreasing all the time. Where you had to design for 4000h when you wanted to reach 2000h for 99% of the production lot you now design for 2100h or even less.

      Quite prominent in modern cars: They get senile overnight 😉

  36. Uwe :
    What did not work was the assumption that the Airbus process was an easy copy.
    The whole process is filled with cultural differences forming perceptions and actions.

    Nobody understood this better than the French and that is why they left the task to organize manufacturing of the Airbus to the Germans. When Roger Beteille gave the job to Felix Kracht, he new exactly what he was doing.

    Kracht’s philosophy was this: To execute a task once and in a single place. Maybe there is a lesson there for Boeing. 😉

    Reference: “Flight of the Titans” by Kenny Kemp, 2006.

    • What I have been wondering about:
      Did Boeing have access to Kracht’s wartime work at DFS via Operation Paperclip?
      ( aside from other stuff Airplane coupling and refueling during flight, a completely working system )

      Someone at Boeing certainly had seen and understood the high speed
      aerodynamics research results from Germany: Swept wings and what later
      became known as Whitcomb area rule.

  37. Uwe :
    Someone at Boeing certainly had seen and understood the high speed
    aerodynamics research results from Germany: Swept wings and what later
    became known as Whitcomb area rule.

    Yes there was someone at Boeing that had seen and understood what the Germans had accomplished. His name was George Schairer, the chief aerodynamicist for Boeing. He was in Germany in May 1945 and he sent drawings and notes to Seattle, where the B-47 team immediately began to test the german concepts in the wind tunnel.

    Reference: “Deep Stall” by Phillip K. Lawrence & David W. Thornton, 2005.

  38. Thank you.
    So many books to read ( something always lacks : funds, time, knowing what to read )

  39. Normand # 75 No offense was intended. I was being sarcastic about the credibility of McInerny’s latest 787 production/delivery figures/dates. My only disagreement is that the BS about production/delivery has not been “occasional.” It has been on-going at least since the big, false roll out, and I hate it as you do. Otherwise, I am in complete agreement with you, particularly the “truth” part.

    I say this because long before B started lying about the 787 delivery etc, they had already conceived the plane based on a core obvious lie similar to what existed in the financial world at the time. It was that there was no need to frankly face and plan for real risk. Risk could be ignored. So-called “risk managers” were not managing risk at all because they didn’t believe there was any. They were willfully blind to real, present, severe risk that emotionally healthy, mature people would have addressed for what it was. This was the case whether the risk was basing investments secured by US real property and the credit default swaps insuring those investments on the historically false idea that the value of US property would always go up, or in B’s case believing that they could create perhaps the most complicated international supply chain in industrial history to build an entirely new type of plane without any risk that that chain would fail, and hence without the need for intense supervision by B; eg. there was no risk that Alenia, in far off Italy at the bottom of the boot, would screw up over and over again, or that Vought would prove incapable of performing. I can still remember how astounded Bear was when the first fuselage sections began arriving at B missing 30,000 + parts.

    The failure to appreciate risk is really about the childish idea that there are no limits, like the two year old who believes he should have what he wants whatever it is when he wants it without paying for it. One way of looking at the present US political campaign and the debt upheaval in Europe is that each is struggle between those wanting to face hard truths about the real limits life imposes and those who persist in denying this truth, like the Greeks who seem to think that others should pay their way without their having to change their life styles and material consumption.

    • “.. like the two year old who believes he should have what he wants whatever it is when he wants it without paying for it. ..”

      he.
      They got it. .. And they are on withdrawal now ( or will be in the very near future ).

      When did A380 all out bashing start?
      That imho was the moment someone at Boeing realised that things were starting to get pearshaped. And the reaction was typical of this system: Don’t fix your problems make someone else look bad first to later better hide in the shadows.

    • Having read your previous posts, I should have caught the irony. But the misunderstanding was apparently quite fruitful. On one hand, it gave me the opportunity to speak my mind a little further, and on the other it gave you the opportunity to write one of your best posts.

      What you say about risk is extremely interesting and pertinent. Especially the parallel you make with Wall Street. Was it part of a Zeitgeist? On the face of it, maybe it was. Each time I think about the 787 the word “risk” floats around my head. “Don’t they see the risks?” That’s the question I have been asking myself since the very beginning of this project. I was left constantly in a state of total disbelief. Not that I was associated closely to the project. Not at all. Just by simply reading the reports in Aviation Week. How many times did I catch myself shaking my head in disbelief when reading one of those articles? Many! And each time I said to myself “these guys are going to hit the wall sooner or later”.

      Almost 100% of the statements coming out of Chicago in those days were totally unrealistic. And I want to make clear that I am not saying this with the benefit of hindsight. It has always been clear to me that these guys were living on a different planet. Maybe it was Planet Hollywood, I don’t know. But the special effects failed to impress me anyway. And like the little child in the tale, I could see that the Emperor had no clothes.

      • You have come to a similar conclusion to the one I came to some time ago.

        Zeitgeist.
        Yes.
        “There is no tomorrow.”

        But there is more to it and in a way it tides over from the banking industry.

        The Imperative of this “Zeitgeist Epoche” is redistribution
        of the existing and not productive creation. All the profits
        capital services are taxation on productive processes ( or
        condense as dept )

        And the elite of this epoche is living it. All the competitive
        forces have turned from expansive to selfdigestion.

  40. Yesterdays news:

    “McNerney, however, insisted at the handover of the first 787 that “we have a robust plan. We’ve got a surge line here in Everett. We’ve got a factory in South Carolina to bolster the core of it, which is here in Everett. We have healed up our partners’ production processes.”

    “We have a plan to be at 10 787s a month by the end of 2013 and we have confidence we can make it,” McNerney said.”

    http://atwonline.com/aircraft-engines-components/article/ramp-time-1102

    Don’t we all want to believe it. Again.

  41. Pingback: 737 MAX ‘commitments’ and what these mean « Leeham News and Comment

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